The Department of Telecommunica­tions (DoT) has decided to extend the production-linked incentive (PLI) scheme for the sector by another year, and also cl­e­a­­red a new set of 11 telecom and net­­wor­king products, which will be brou­ght under the scheme with additional in­centives of about Rs 40 billion. The existing PLI beneficiaries will be given the option to choose financial year 2021-22 or financial year 2022-23 as the first year of incentive.

The telecom-related PLIs were origi­na­lly announced in February 2021 with an outlay of Rs 122 billion. About 31 com­pa­ni­es, including 16 medium and small-scale enterprises (MSMEs) and 15 non-MSMEs (large companies), were granted approval in October 2021.

Of the non-MSMEs, eight were dom­es­tic companies while seven were multinationals. The companies selected under the scheme include Flextronics, Foxconn, Jabil (an Ericsson group firm), Nokia, Rising Star, Dixon Technologies, VVDN Techno­logies, Tejas Networks, HFCL, ITI, Coral Telecom and Lekha Wireless.

The union Budget 2022-23 amended the scheme and added the concept of de­si­gn-led manufacturing in order to enco­u­rage re­search and development (R&D), es­pe­ci­ally with a focus on building the eco­system for the yet-to-be-launched 5G service. Starting June 21, 2022, DoT invited ap­plications from design-led manufacturers as well as others for availing of PLIs for five years commencing April 1, 2022.

Successful applicants up to financial ye­ar 2025-26 will be eligible, provided th­­­­ey meet the qualifying standards of in­c­re­­mental annual thresholds. The new ver­si­on of the telecom PLI scheme also remo­v­es the 15 per cent cap on investment to be made for R&D.

Telecom equipment makers that use 50 per cent Made in India components in the­ir products will be eligible for the design-lin­ked incentive. The scheme stipulates a minimum investment threshold of Rs 100 million for MSMEs and Rs 1 billion for non-MSME applicants while being open to both domestic and global firms. Land and building costs will not be counted as investments under the scheme. The allo­ca­­tion for MSMEs has been enhanced from Rs 10 billion to Rs 25 billion.

DoT also said that applications for de­sign-led manufacturing will be prioritised over other manufacturers while shortlisting. This is to recognise and encourage R&D-driven manufacturing in India to en­hance the contribution to the global value ch­ain as envisaged in the National Digital Communications Policy, 2018.

The incentives will be based on incremental sales of manufactured goods and ra­n­ge between 4 per cent and 7 per cent for different categories over the five-year period. MSMEs will get an additional 1 per cent incentive in the first, second and third years.

The minimum global revenue criteria must be satisfied to be eligible for incenti­ves and applicants have the option to in­ve­st in a single or in multiple eligible pro­ducts. The incremental sales of manufactured goods as covered under the sche­me’s target segments will be calculated over the base year (2019-20). The new PLI comm­itment from the DoT side, including the expanded list, is Rs 40 billion.

The extensions and additions could attract around $3 billion (roughly Rs 239 billion) of potential new investments from global and local companies, say stakeholders. It would drive the local creation of intellectual property and also help fill gaps in local supply chains for telecom-related products.

According to Ericsson, the incentives for design-led manufacturing will help grow the overall network ecosystem. More local design and manufacturing will mean growth of the overall sector and growth of the components ecosystem, which is critical for sustaining local manufacturing.

The extension is at least partially due to the failure of many MSMEs to submit their investment plans and meet the production targets for fiscal year 2021-22. The extension offers them the chance to opt for 2022-23 as the first year of incentive. Companies that have actually met the targets can, however, register for incentives in 2021-22 itself.

The development comes after a number of domestic manufacturers had written to DoT seeking a one-year extension to meet the targets since they effectively had only four months to meet their targets in 2021-22 as the approval came very late in the financial year. While big multinational players such as Nokia and Ericsson were on track to meet the targets for the first year of the PLI scheme, many domestic players were unable to meet their incremental investment and production targets for the first year since the final approvals came only in November 2021.

The initial PLI outlay amounting to Rs 121.95 billion was also not utilised fully. The 31 proposals cleared in October 2021 entailed investments of Rs 33.45 billion until 2025-26. According to the gov­er­­nment’s dashboard, Rs 4.5 billion has be­en invested via the scheme, led primar­ily by global companies, which account for more than Rs 2.4 billion of the total inve­stment so far. The scheme has generated over 5,000 estimated employment opportunities and sales worth over Rs 90 billion have taken place under the scheme.

Hence, DoT is giving an option to sel­e­ct companies to also apply for the design-led manufacturing scheme, which gives an additional 1 per cent incentive. But in order to be selected for the design-led sche­­me, the companies must design locally and register the source code in India.

The extension and the expansion have both been welcomed by stakeholders. “The industry could not have expected a better time for this announcement as the global su­pply chain has been impacted by geopolitical tensions following the pandemic,” says Pankaj Mohindroo, chairman, India Ce­ll­ular Electronics Association.

Prashant Singhal, EY’s Global TMT Em­erging Markets Leader, believes that with the thrust to the right segments and an enabling environment, “India is well po­sitioned to attract more global manufacturers and also incentivise Indian design-led manufacturers”.

N.K. Goyal, chairman emeritus, Te­le­com Equipment Manufacturers Asso­cia­­ti­on, says: “We can expect both existing PLI beneficiaries as well as new players to participate in the scheme, which, in turn,

sh­ou­ld give a boost to component supply chains, lead to IPR creation and more tech jobs.” The extension of the PLI scheme by another year meets a long-standing de­ma­nd of the local applicants since it is always a challenge to meet scheme targets in the first year, given inevitable delays in ap­p­roval, he adds. If all goes as planned, this should help India edge closer to meeting its goal of becoming an electronics design and manufacturing hub.

Disbursements of incentives for the first fiscal year (2021-22) for the allied ha­nd­set PLI scheme run by the Ministry of Electronics and Information Technolo­gy have been delayed, reportedly due to the re-examination of invoices raised by an overseas applicant. The government is be­ing cautious and is double-checking the numbers to ensure everything is in order before the first payout of incentives is ma­de under the PLI scheme.

The allocations under the handset manufacturers’ scheme amount to Rs 410 billion. The scheme offers graded incentives in the form of cashback at 6 per cent of in­cremental sales of goods for the first two years each, 5 per cent for the third and fo­urth years, and 4 per cent for the fifth year.

The firms that qualified under the handset scheme include Samsung Electro­nics, Hon Hi (Foxconn) and Wistron, be­sides domestic contract manufacturers Dix­on Technologies and UTL Neolyncs. Wistron and Foxconn make Apple handsets while Samsung manufactures its own brand products.

Overseas firms need to invest Rs 2.5 billion each to qualify and to produce in­cremental output of Rs 40 billion in the first year and Rs 80 billion in the second to get the cashbacks. Indian handset makers have to invest Rs 500 million each and achieve Rs 5 billion of incremental output. The handset PLI scheme is expected to br­ing in fresh investments, leading to a CAGR of 15-20 per cent in mobile phone production till 2025-26. Moreover, localisation would rise from the current 15-20 per cent to 35-40 per cent over this period, with a consequent value addition and positive implications for exports.

If the telecom PLI works as planned, it should generate employment and domestic IP for participants, and also help elevate India’s profile in the 5G environment. The Rs 760 billion semiconductor PLI sc­­heme, which was also launched in 2021-22, is part of the same digital ecosystem. If that takes off along with the already successful handset scheme, the local digital supply chain would be considerably en­han­ced and India’s global presence, including IP, across these interlinked sectors would increase.

Devangshu Datta